Zara: The World's Largest Fashion Retailer - Competitive Situation and Internal Functioning Analysis

STRATEGIC MANAGEMENT CONCEPTS AND PROCESSES
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Question 1.
The case study under consideration is called “Zara: The world’s largest fashion retailer” by
Ferdows, Machuca, and Lewis (2014). This case study won the production and operation
management category during a competition held in the year 2017 called The Case Center Award
and Competition. We first consider competitive situation based on Zara case study so as to
determine the internal functioning of Zara along with aspects of the competitive environment
surrounding the market venture.
Through the application of value chain activities, the concept of the internal functioning of Zara
can be analyzed from several concepts of marketing environment. First, it is significant to state
that the value chain of Zara is not simple to copy. Again, the value chain is not invulnerable and
finally, the value chain failed to dominate the present and future business operations in the
market (Thomas, 2009). All these aspects are caused by business model applied in Zara. Zara
needed to respond to the business environment, react to threats and opportunities or rather gaps
in the markets so as to achieve competitive advantage.
Zara value chain analysis involved primary activities that are inbound logistics. Inbound logistics
typically relate to the raw material used to make fashions and designs in the industry. First, Zara
outsourced raw materials from Hong Kong as well as from China so as to improve the quality of
fabric used in manufacturing process. Again, Zara had to force prices to stay down so as to retain
competitive advantage in the market.
Again, Zara ensured that half of the fabrics retained original plain color so as to facilitate
seasonal updating. This value chain activity was achieved via vertical integration. Zara managed
to receive finished fabrics. This fabric was obtained from 100% owned subsidiary of Inditex.
Inditex is widely known for the application of just in time manufacturing system. Zara also
received patterned and dyed fabric from the same company.
This section deals with operations in terms of intermediate goods and components. Zara
employed an advanced system in telecommunication so as to connect sales locations, supply, and
production unit to headquarter. Again, Zara managed to manufacture fashion sensitive items

STRATEGIC MANAGEMENT CONCEPTS AND PROCESSES
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from inside operations and later managed to outsource 85% of price-sensitive items in-house
production.
In addition, automation of factories was highly regarded which was demonstrated via application
of specialized garment type. Lastly, Zara managed to maintain long-term ties and long-term
relationship with 450 sewing workshops and many suppliers which reduced their contractual
commitment.
From figure 3.1, there are several aspects that can be considered. Zara made consistent growth in
terms of sales. Each year, the number of sales made increased. This is a positive trend from 1991
to 2013. This trend can be associated with product innovation. Zara deal with clothes
manufacturing. The business achieved growth from application of advanced technological
measures which probably increased sales made each year.
The technological business model was applied by Zara. Through value chain analysis, it was
clear that Zara used technology for clothes identification and clothes manufacturing which was
later used to reach the market. This was able to reduce operating costs and expenses such as
advertising costs. All these aspects assisted in achieving appropriate internal functioning of Zara.
Zara has managed to venture different market areas despite facing unhealthy competition in the
market. Initially, Zara was faced with a problem of retailing where customers had to make
orders. This process delayed the supply of clothes based on consumers’ fashion and design. This
process paved the way for competitors who would dominate the market at the expense of Zara.
Competition is about knowing what consumers want so as to satisfy their lists of preference. In
that connection, Zara needed to consider the design and fashion that consumers needed. This can
be determined via application of modern technology. Technology has a wider application in
designing different fashions and models in clothing industry (McGregor, 2012). Aspects to be
considered in clothing design and fashion would include the color of the clothes, the texture of
skin sensitivity, changes in temperatures such as hot weather and cold weather. This competitive
strategy in clothing industry will attract consumers and customers. Zara used technology to
identify fashions and designs in the clothing industry. At the same time, technology was applied
in manufacturing those fashions and designs.

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For subsequent years, Zara managed to increase retail stores in different corners of the globe.
Statistical data have been used to determine a trend. This data from figure 3.1 indicates the net
worth of Zara despite competition in the market. The number of countries ventured along with
retail stores operated. Therefore, considering the revenue generated by Zara, the aspect of market
shares, the value of the market, key players in the market and growth rate of the business become
vivid.
In addition, the concept of external environment and internal environment that arise on Zara can
be analyzed critically using SWOT analysis model indicated in table 3.2. This model provides
details on strengths, weaknesses, opportunities, and threats. Zara had to face these issues so as to
realize growth as indicated in growth rate demonstrated by an increase in the number of
countries ventures along with retail stores operated. Strengths and weaknesses demonstrate
internal environment while opportunities and threats demonstrate external environment.
Strengths.
1. Conventional
wisdom in
apparel retail
makes the
technological
model much
strategic for Zara
in the
competitive
environment.
2. Zara has applied
advanced
technology so as
to dominate the
retail fashion
industry.
Weaknesses.
1. Zara has also
struggled with
the downside
of cost-centric
contract.
2. There were a
lot of unsold
items in
different
stores across
different
markets.
3. Again,
overseas
contract
Opportunities.
1. Zara had an
opportunity to
have chain
profitability
from the new
designs and
fashions in the
market.
2. Contract
manufacturing
also becomes
appropriate in
providing
Zara with
several
benefits such
Threats.
1. Many fashion
retailers
provide
invoices to
place orders
for a periodic
collection
months before
these lines
make an
appearance in
stores.
2. Many stores
were shut
down by
Pressler as a